Prices of goods and services do not adjust immediately in response to changing demand and supply conditions. This paper characterizes the average frequency and size of price changes in the euro area and its member countries, investigates the determinants of the probability of price changes, and compares the evidence for the euro area with available U.S. results. The facts documented in this paper are based on evidence from individual price data recorded at the store level in all euro area countries except Ireland and Greece: that is in datasets covering Austria, Belgium, Finland, France, Germany, Italy, Luxembourg, the Netherlands, Portugal, and Spain, which together account for around 97 percent of euro area GDP. The data used are the monthly price records underlying the computation of national Consumer Price Indices and Harmonized Consumer Price Indices. These data cover a large number of products selected on the basis of extensive Household Budget Surveys.

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in WO R K I N G PA P E R S E R I E S N O. 5 2 4 / S E P T E M B E R 2 0 0 5 EUROSYSTEM INFLATION PERSISTENCE NETWORK The Eurosystem Inflation Persistence NetworkThis paper reflects research conducted within the Inflation Persistence Network (IPN), a team of Eurosystem economists undertaking joint research on inflation persistence in the euro area and in its member countries. The research of the IPN combines theoretical and empirical analyses using three data sources: individual consumer and producer prices; surveys on firms' price-setting practices; aggregated sectoral, national and area-wide price indices. Patterns, causes and policy implications of inflation persistence are addressed.Since C O N T E N T S Abstract 4Non-technical summary 5

We prove that the ratio of kurtosis to the frequency of price changes is a sufficient statistic for the real effects of monetary shocks, measured by the cumulated output response following the shock. The sufficient statistic result holds in a large class of models which includes Taylor (1980); Calvo (1983); Reis (2006 ); Golosov and Lucas (2007 ); Nakamura and Steinsson (2010); Midrigan (2011); and Alvarez and Lippi (2014). Several models in this class are able to account for the positive excess kurtosis of the size distribution of price changes that appears in the data. We review empirical measures of kurtosis and frequency and conclude that a model that successfully matches the microevidence on kurtosis and frequency produces real effects that are about four times larger than in the Golosov-Lucas model, and about 30 percent below those of the Calvo model. We discuss the robustness of our results to changes in the setup, including small inflation and leptokurtic cost shocks. (JEL, E23, E31)

Using the ECB Survey of Professional Forecasters we find evidence that those forecasters draw systematically biased predictions and disagree even if they forecast the same variable. Recent theoretical advances in the macroeconomics of imperfect information relate these bias and disagreement to theories of inattention. We provide a micro data estimation of the extent of inattention among professional forecasters. We show that, on our sample, about 20% of professional forecasters are inattentive to new information released each quarter. However, a formal test reveals that this observed inattention cannot generate the extent of systematic forecasting errors and disagreement among forecasters characterizing the data. There is more stickiness in expectations than the one the mere inattention is able to generate.Keywords: Expectations, information, disagreement, inattention, business cycle * We thank Anil Kashyap, Noburo Kiyotaki, Bartosz Maćkowiak, Ernesto Pastén, Giorgio Primiceri, Jonathan Willis, Alexander Wolman, Michael Woodford and seminar participants at the ECB and Banque de France for useful comments. We are also grateful to Sylvie Tarrieu for superb research assistance as to Claudia Marchini and Ieva Rubene for their help with the SPF data. This paper does not reflect the views of the Banque de France.

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. In 2005 all ECB publications will feature a motif taken from the €50 banknote. Terms of use: Documents in WO R K I N G PA P E R S E R I E S N O. 5 6 3 / D E C E M B E R 2 0 0 5 C O N T E N T S Abstract 4Non-technical summary 5